Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
The
following discussion should be read in conjunction with the
information contained in the consolidated financial statements of
Solitario for the years ended December 31, 2019 and 2018, and
Management’s Discussion and Analysis of Financial Condition
and Results of Operations contained in Solitario’s Annual
Report on Form 10-K, as amended, for the year ended December 31,
2019. Solitario's financial condition and results of operations are
not necessarily indicative of what may be expected in future
periods. Unless otherwise indicated, all references to dollars are
to U.S. dollars.
(a)
Business Overview and Summary
We are
an exploration stage company under Industry Guide 7, as issued by
the SEC, with a focus on the acquisition of precious and base metal
properties with exploration potential and the development or
purchase of royalty interests. Currently our primary focus is the
acquisition and exploration of zinc-related exploration mineral
properties. However, we will continue to evaluate other mineral
properties for acquisition, and we hold a portfolio of mineral
exploration properties and assets for future sale, joint venture or
on which to create a royalty prior to the establishment of proven
and probable reserves. Although our mineral properties may be
developed in the future by us, through a joint venture or by a
third party, we have never developed a mineral property. In
addition to focusing on our current mineral exploration properties,
we also from time to time evaluate potential strategic transactions
for the acquisition of new precious and base metal properties and
assets with exploration potential.
Our
current geographic focus for the evaluation of potential mineral
property assets is in North and South America; however, we have
conducted property evaluations for potential acquisition in other
parts of the world. At September 30, 2020, we consider our carried
interest in the Florida Canyon project in Peru and our interest in
the Lik project in Alaska to be our core mineral property assets.
In addition, at September 30, 2020, we have one other exploration
property in Peru. We are conducting independent exploration
activities on our own and through joint ventures operated by our
partners in Peru and the United States.
We have
recorded revenue in the past from the sale of mineral properties,
including from the Royalty Sale in January 2019 and the sale in
June 2018 of our interest in the royalty on the Yanacocha property.
Revenues and / or proceeds from the sale or joint venture of
properties or assets, although generally significant when they have
occurred in the past, have not been a consistent source of revenue
and would only occur in the future, if at all, on an infrequent
basis. We have reduced our exposure to the costs of our exploration
activities in the past through the use of joint ventures. Although
we anticipate that the use of joint venture funding for some of our
exploration activities will continue for the foreseeable future, we
can provide no assurance that these or other sources of capital
will be available in sufficient amounts to meet our needs, if at
all.
As
of September 30, 2020, we have balances of cash and short-term
investments that we anticipate using, in part, to (i) fund costs
and activities intended to further the exploration of the Lik
project, (ii) fund costs and activities intended to further the
exploration at the Florida Canyon project, (iii) conduct
reconnaissance exploration and (iv) potentially acquire additional
mineral property assets. The fluctuations in precious metal and
other commodity prices contribute to a challenging environment for
mineral exploration and development, which has created
opportunities as well as challenges for the potential acquisition
of advanced mineral exploration projects or other related assets at
potentially attractive terms.
(b)
Effects of COVID-19
As
of September 30, 2020, the effects of COVID-19 have not had a
material adverse effect on Solitario’s administrative
activities as we have only three full-time employees, all of whom
can work remotely, and are not required to meet in person on a
regular basis. To date, our joint ventures also have not been
directly affected by the effects of COVID-19, as they are remote
exploration projects, with no full-time or part-time on-site
employees or contractors. However, our joint-venture partners, Teck
at our Lik project and Nexa at our Florida Canyon project, have
taken steps, with our concurrence, to reduce the planned
exploration activities on these projects for 2020 due to several
factors. These factors include but are not limited to; (i) our
partners’ limited exploration staffing; (ii) the need to put
into place safety and operational protocols for COVID-19 and other
potential pandemics related to all of their exploration activities;
(iii) the ability to reallocate exploration resources to non-site
specific tasks, such as data and resource review, and planning for
future drilling; and (iv) the ability to postpone 2020 exploration
activities to 2021 by using the interim period to enhance potential
2021 exploration programs. Solitario does not believe the reduction
in 2020 exploration activities reflects on the long-term economic
potential of either its Lik or Florida Canyon
projects.
Because
of the uncertainty caused by COVID-19, and the resulting market
volatility and unknown long-term effects of COVID-19, Solitario has
taken steps to reduce the potential impact of COVID-19 on its
liquidity and capital resources by; (i) obtaining the PPP Loan;
(ii) initiating salary reductions for all of its employees; (iii)
reducing its contractual amounts due to contractors; (iv) reducing
non-core activities such as travel and investor relations; and (v)
reducing or delaying certain capital costs such as equipment
replacement. Although the impact of COVID-19 on Solitario’s
ability to access capital markets is unknown and may be reduced,
Solitario believes the proceeds of the PPP Loan combined with
Solitario’s current assets, provide Solitario with the
flexibility to continue its on-going operations.
Nonetheless,
the extent to which COVID-19 impacts our business, including our
exploration and other activities and the market for our securities,
will depend on future developments, which are highly uncertain and
cannot be accurately predicted at this time. Please see Item 1A,
“Risk Factors,” below.
(c)
Results of Operations
Comparison of the three months ended September 30, 2020 to the
three months ended September 30, 2019
We had
a net loss of $53,000 or $0.00 per basic and diluted share for the
three months ended September 30, 2020 compared to a net loss of
$1,480,000 or $0.03 per basic and diluted share for the three
months ended September 30, 2019. As explained in more detail below,
the primary reasons for the decrease in net loss in the three
months ended September 30, 2020 compared to the net loss during the
three months ended September 30, 2019 were (i) a reduction in
exploration expense to $112,000 in the three months ended September
30, 2020 compared to exploration expense of $815,000 during the
three months ended September 30, 2019; (ii) a reduction in general
and administrative expense to $226,000 in the three months ended
September 30, 2020 compared to general and administrative expense
of $319,000 during the three months ended September 30, 2019; and
(iii) an unrealized gain on marketable equity securities of
$333,000 during the three months ended September 30, 2020 compared
to an unrealized loss on marketable equity securities of $347,000
during the three months ended September 30, 2019. Partially
offsetting the above items was (i) a reduction in our interest
income to $3,000 during the three months ended September 30, 2020
compared to interest income of $43,000 during the three months
ended September 30, 2019; and (ii) a loss on derivative instruments
of $70,000 during the three months ended September 30, 2020
compared to a loss on derivative instruments of $36,000 during the
three months ended September 30, 2019. Each of the major components
of these items is discussed in more detail below.
Our
exploration expense decreased to $112,000 during the three months
ended September 30, 2020 compared to our exploration expense of
$815,000 during the three months ended September 30, 2019 as a
result of (i) our joint venture partner Nexa meeting the final
required total drilling target of 5,100 meters of drilling at the
Florida Canyon project during the three months ended September 30,
2019 with Solitario responsible for $527,000 of the total drilling
costs incurred by Nexa resulting in recording of $527,000 of
exploration expense during the three months ended September 30,
2019 with no similar drilling at Florida Canyon during the three
months ended September 30, 2020; (ii) a reduction in our
reconnaissance exploration program to $81,000 during the three
months ended September 30, 2020 compared to reconnaissance
exploration of $102,000 during the three months ended September 30,
2019; (iii) a reduction in our exploration expense at our Lik
project in Alaska to $27,000 during the three months ended
September 30, 2020 compared to exploration expense at Lik of
$147,000 during the three months ended September 30, 2019 and (iv)
a reduction in our La Promesa project expenses to $nil during the
three months ended September 30, 2020 compared to project expenses
at La Promesa of $31,000 during the three months ended September
30, 2019. During the three months ended September 30, 2020 we had
one contract geologist in Peru, and our Denver personnel spent a
majority of their time on reconnaissance exploration activities
described above and related matters. We have budgeted approximately
$493,000 for our full-year exploration expenditure for 2020, which
as discussed above in “Effects of COVID-19,” is
reduced, from our original full-year exploration budget of
$976,000. As discussed above, our joint venture partners, with our
concurrence, have reduced planned exploration expenditures, the
bulk of which were planned for our Lik project which previously
included approximately $527,000 for Solitario’s share of a
joint drilling program with Teck at the Lik project. The revised
plan at the Lik project calls for a full-year 2020 budget of
approximately $90,000, with the bulk of those expenses planned for
the third and fourth quarters of 2020. Given the significant
drilling that was performed in 2019, primarily for drilling at our
Florida Canyon project, we expect our full-year exploration
expenditures for 2020 to be below the full-year exploration
expenditures for 2019.
Exploration expense
(in thousands) by project consisted of the following:
|
|
Three months
ended
September 30,
|
Nine months
ended
September 30,
|
|
Project
Name
|
|
|
|
|
|
Florida
Canyon
|
$4
|
$535
|
$10
|
$1,070
|
|
Lik
|
27
|
147
|
(11)
|
190
|
|
La
Promesa
|
-
|
31
|
-
|
90
|
|
Reconnaissance
|
81
|
102
|
270
|
330
|
|
Total
exploration expense
|
$112
|
$815
|
$269
|
$1,680
|
General
and administrative costs, excluding stock option compensation
costs, discussed below, were $153,000 during the three months ended
September 30, 2020 compared to $234,000 during the three months
ended September 30, 2019. The major components of this reduction in
costs were related to (i) salaries and benefit expense of $74,000
during the three months ended September 30, 2020 compared to salary
and benefit costs of $108,000 during the three months ended
September 30, 2019, as we have reduced staff and taken salary
reductions during 2020; (ii) legal and accounting expenditures of
$26,000 in the three months ended September 30, 2020 compared to
$40,000 in the three months ended September 30, 2019; (iii)
directors and officer insurance cost of $14,000 during the three
months ended September 30, 2019 with no similar cost during 2020 as
Solitario dropped its director and officer insurance during 2020
due to the high cost; (iv) office rent and expenses of $27,000
during the three months ended September 30, 2020, compared to
$33,000 during the three months ended September 30, 2019; and (v)
travel and shareholder relation costs of $26,000 during the three
months ended September 30, 2020 compared to $38,000 during the
three months ended September 30, 2019. We anticipate the full-year
general and administrative costs will be lower for 2020 compared to
2019.
We
recorded $72,000 of stock option compensation expense for the
amortization of unvested grant date fair value with a credit to
additional paid-in-capital during the three months ended September
30, 2020 compared to $85,000 of stock option compensation expense
during the three months ended September 30, 2019. These non-cash
charges related to the expense for vesting of stock options
outstanding during the three months ended September 30, 2020 and
2019. The primary reason for the decrease in 2020 was the vesting
of previously granted options, for which we no longer amortize
grant date fair value. See Note 11, “Employee Stock
Compensation Plans,” above, for additional information on our
stock option expense.
We recorded a non-cash unrealized gain on
marketable equity securities of $333,000 during the three months
ended September 30, 2020 compared to an unrealized loss on
marketable equity securities of $347,000 during the three months
ended September 30, 2019. The
gain during the three months ended September 30, 2020 was primarily
related to (i) an increase in the value of our holdings of 100,000
shares of Kinross common stock, which increased to a fair value of
$882,000 at September 30, 2020 from a fair value of $722,000 at
June 30, 2020 or an increase of $160,000 based on quoted market
prices; (ii) an increase in the value of our 11,550,000 shares of
Vendetta common stock of $224,000, based on quoted market prices,
which increased from a fair value of $424,000 at June 30, 2020 to a
fair value of $648,000 at September 30, 2020, (iii) a decrease in
the value of our holdings of Vox Royalty common shares of $40,000
to $303,000 at September 30, 2020 from a fair value of $343,000 at
June 30, 2020 based on quoted market prices and, we held other
marketable equity securities with a fair value of $11,000 at
September 30, 2020 and June 30, 2020. In addition, we recorded an
$11,000 unrealized loss to the date of sale on the Vendetta shares
we sold during the three months ended September 30,
2020.
We
recorded interest income of $3,000 during the three months ended
September 30, 2020 compared to interest income of $43,000 during
the three months ended September 30, 2019. This reduction was
primarily due to (i) a decrease in the interest earned on our
short-term investments in USTS as a result of a decrease in the
total amount of outstanding short-term investments during the three
months ended September 30, 2020 compared to the three months ended
September 30, 2019; (ii) the average interest rates on our existing
short term investments decreased during the three months ended
September 30, 2019, which increased the value of existing USTS we
held based upon quoted market prices during the three months ended
September 30, 2019; compared to the three months ended September
30, 2020, during which interest rates were relatively stable and we
did not record a comparable increase in value of our existing USTS;
and (iii) the actual interest rates during 2020 have been very
close to zero on USTS which compounds the reduction in the amount
of interest earned on our lower balance of USTS discussed
above.
We
regularly perform evaluations of our mineral property assets to
assess the recoverability of our investments in these assets. All
long-lived assets are reviewed for impairment whenever events or
circumstances change which indicate the carrying amount of an asset
may not be recoverable utilizing guidelines based upon future net
cash flows from the asset as well as our estimates of the
geological potential of an early stage mineral property and its
related value for future sale, joint venture or development by us
or others. During the three and nine months ended September 30,
2020 and 2019, we recorded no property impairments.
At
September 30, 2020 and 2019, our net operating loss carryforwards
exceed our built-in gains on marketable equity securities resulting
in a net tax asset position for which we provide a valuation
allowance for all net deferred tax assets. We recorded no income
tax expense or benefit during the three and nine months ended
September 30, 2020 or 2019. As a result of our administrative
expenses and exploration activities, we anticipate we will not have
currently payable income taxes during 2020. In addition to the
valuation allowance discussed above, we provide a valuation
allowance for our foreign net operating losses, which are primarily
related to our exploration activities in Peru. We anticipate we
will continue to provide a valuation allowance for these net
operating losses until we are in a net tax liability position with
regards to those countries where we operate or until it is more
likely than not that we will be able to realize those net operating
losses in the future.
Comparison of the nine months ended September 30, 2020 to the nine
months ended September 30, 2019
We had
a net loss of $405,000 or $0.01 per basic and diluted share for the
nine months ended September 30, 2020 compared to a net loss of
$2,923,000 or $0.05 per basic and diluted share for the nine months
ended September 30, 2019. As explained in more detail below, the
primary reasons for the decrease in our net loss were (i) a
decrease in exploration expense to $269,000 during the nine months
ended September 30, 2020 compared to exploration expense of
$1,680,000 during the nine months ended September 30, 2019; (ii) a
decrease in general and administrative costs to $816,000 during the
nine months ended September 30, 2020, compared to general and
administrative expenses of $1,065,000 during the nine months ended
September 30, 2019; (iii) an unrealized gain on marketable equity
securities of $584,000 during the nine months ended September 30,
2020 compared to an unrealized loss on marketable equity securities
of $736,000 during the nine months ended September 30, 2019; (iv)
we recorded $44,000 of other income on the conversion of the
SilverStream Note, discussed above during the nine months ended
September 30, 2020 with no similar item during the nine months
ended September 30, 2019; and (v) we sold 2,900,000 shares of
Vendetta common stock for proceeds of $123,000 and recorded a
realized gain of $50,000 during the nine months ended September 30,
2020 with no similar sales of marketable equity securities during
the nine months ended September 30, 2019. These causes of the
decrease in our net loss during the period were partially offset by
(i) recording mineral property sale revenue of $408,000 from the
Royalty Sale during the nine months ended September 30, 2019, with
no comparable mineral property sale during the nine months ended
September 30, 2020; (ii) a decrease in interest income to $111,000
during the nine months ended September 30, 2020 compared to
interest income of $205,000 during the nine months ended September
30, 2019; and (iii) recording a loss on derivative instruments of
$90,000 during the nine months ended September 30, 2020 with a loss
of $36,000 during the nine months ended September 30, 2019. The
significant changes for these items are discussed in more detail
below.
During
the nine months ended September 30, 2019, we completed the Royalty
Sale and recorded net revenues of $408,000 with no comparable sale
during the nine months ended September 30, 2020. See Note 2
“Mineral Property” above for a discussion of the
Royalty Sale. We do not anticipate additional significant property
sales during the remainder of 2020.
Our net
exploration expense decreased to $269,000 during the nine months
ended September 30, 2020 compared to $1,680,000 during the nine
months ended September 30, 2019. The primary reasons for the
decrease was (i) the recording of $1,054,000 of exploration expense
for the completion of drilling by Nexa in excess of the 5,100-meter
threshold at the Florida Canyon project during the first nine
months of 2019, discussed above, with no similar charge in the nine
months ended September 30, 2020; (ii) reducing our exploration
activity at our La Promesa project and our reconnaissance
exploration activity, as detailed in the table above, during the
nine months ended September 30, 2020 compared to the nine months
ended September 30, 2019; and (iii) a one-time non-cash credit to
our accrued expenses at our Lik project of $52,000 during the nine
months ended September 30, 2020, resulting from the billing of 2019
exploration expenditures from Teck to reflect that Teck did not
spend the entirety of the budgeted expenditures at the Lik project
during 2019, which we had accrued.
General
and administrative costs, excluding stock option compensation costs
discussed below, were $529,000 during the nine months ended
September 30, 2020 compared to $807,000 during the nine months
ended September 30, 2019. The major components of the costs were
(i) salary and benefit expense during the nine months ended
September 30, 2020 of $218,000 compared to salary and benefit
expense of $323,000 during the nine months ended September 30,
2019, with this decrease being the result of personnel and salary
reductions; (ii) legal and accounting expenditures of $50,000
during the nine months ended September 30, 2020, compared to
$146,000 during the nine months ended September 30, 2019; (iii)
office and other costs of $87,000 during the nine months ended
September 30, 2020 compared to $85,000 during the nine months ended
September 30, 2019; and (iv) travel and shareholder relation costs
of $174,000 during the nine months ended September 30, 2020
compared to $209,000 during the nine months ended September 30,
2019.
During
the nine months ended September 30, 2020 and 2019, Solitario
recorded $287,000 and $258,000, respectively, of stock option
expense for the amortization of unvested grant date fair value with
a credit to additional paid-in capital. The primary reason for the
increase in stock option expense during 2020 was related to the
grant of 1,325,000 options on April 2, 2020 with an exercise price
of $0.20 per share, a five-year term and a grant date fair value of
$145,000 based upon a Black-Scholes model. The options vest 25% on
the date of grant and we recognized $36,000 of grant date fair
value for these options on the date of grant during the nine months
ended September 30, 2020 with no similar item during the nine
months ended September 30, 2019.
We recorded an unrealized gain on marketable
equity securities of $584,000 during the nine months ended
September 30, 2020 compared to an unrealized loss on marketable
equity securities of $736,000 during the nine months ended
September 30, 2019. The non-cash unrealized gain during the nine
months ended September 30, 2020 was primarily related to (i) an
increase in the value of our holdings of 100,000 shares of Kinross
common stock which increased to a fair value of $882,000 at
September 30, 2020 compared to a fair value of $474,000 at December
31, 2019 based on quoted market prices, or an increase of $408,000
for the nine months ended September 30, 2020; and (ii) an increase
in the value of our holdings of 11,550,000 shares of Vendetta
common stock, which increased from a fair value of $446,000 at
December 31, 2019 to a fair value of $648,000 at September 30,
2020, based on quoted market prices, or an increase of $202,000 for
the nine months ended September 30, 2020. The non-cash unrealized
loss during the nine months ended September 30, 2019 was primarily
related to a decrease in the value of our then holdings of
14,450,000 shares of Vendetta common stock which decreased in value
$703,000, based on quoted market prices during the nine months
ended September 30, 2019. We may reduce our holdings of
marketable equity securities depending on cash needs and market
conditions, which may reduce the volatility of the changes in
unrealized gains and losses in marketable equity securities during
the remainder of 2020.
Our
interest income on short-term investments decreased to $111,000
during the nine months ended September 30, 2020 compared to
interest income of $205,000 during the nine months ended September
30, 2019 primarily as a result of (i) the effects of interest rates
reducing during the nine months ended September 30, 2019, which
increased the quoted market price of our USTS holdings during the
nine months ended September 30, 2019, as discussed above; and (ii)
a decreased value of our holdings of short-term investments reduced
the interest earned during the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019. We anticipate
as we utilize our short-term investments to provide funds for
exploration and general and administrative expenses, our interest
income will be reduced during the remainder of 2020 compared to
2019.
During
the nine months ended September 30, 2020, we sold 2,900,000 shares
of our holdings of Vendetta common stock for proceeds of $123,000
and recorded a gain on sale of marketable equity securities of
$50,000. After the completion of the sale of the Vendetta shares,
we hold 11,550,000 shares of Vendetta common stock at September 30,
2020. See Note 3 “Marketable Equity Securities” to the
condensed consolidated financial statements for a discussion of the
sale of Vendetta common stock.
(d)
Liquidity and Capital Resources
Cash and Short-term Investments
As of
September 30, 2020, we have $6,730,000 in cash and short-term
investments. As of September 30, 2020, we have $4,754,000 of our
current assets in USTS with maturities of 30 days to 12 months. In
addition, Solitario has $1,563,000 of its current assets in seven
CD’s with face values between $100,000 and $250,000 and
maturities between eight and 20 months. The USTS and CD’s are
recorded at their fair value based upon quoted market prices. We
anticipate we will roll over that portion of our short-term
investments not used for exploration expenditures, operating costs
or mineral property acquisitions as they become due during the
remainder of 2020.
We
intend to utilize a portion of our cash and short-term investments
in our exploration activities and the potential acquisition of
mineral assets over the next several years. We also expect to use a
portion of our cash to repurchase shares of our common stock
pursuant to the terms of a share repurchase program, discussed
above in Note 12, “Shareholders’ Equity,” to the
unaudited condensed consolidated financial statements, although we
may reduce the number of shares repurchased during the remainder of
2020, if any, in light of the potential effects of COVID-19,
discussed above. The share repurchase program may be terminated at
any time and does not require us to purchase a minimum number of
shares.
Investment in Marketable Equity Securities
Our
marketable equity securities are carried at fair value, which is
based upon market quotes of the underlying securities. At September
30, 2020 we own 11,550,000 shares of Vendetta common stock, 100,000
shares of Kinross common stock and 137,255 shares of Vox common
stock. At September 30, 2020, the Vendetta shares are recorded at
their fair market value of $648,000, the Kinross shares are
recorded at their fair value of $882,000; and the Vox shares are
recorded at their fair value of $303,000. In addition, we own other
marketable equity securities with a fair value of $11,000 at
September 30, 2020. During the nine months ended September 30, 2020
we sold 2,900,000 shares of Vendetta common stock, as discussed
above. We anticipate we may sell some of our marketable equity
securities during the remainder of 2020 depending on cash needs and
market conditions.
Working Capital
We had
working capital of $8,355,000 at September 30, 2020 compared to
working capital of $8,487,000 as of December 31, 2019. Our working
capital at September 30, 2020 consists primarily of our cash and
cash equivalents, our investment in USTS and CD’s, discussed
above, our investment in marketable equity securities of
$1,844,000, and other current assets of $28,000, less our accounts
payable of $141,000, the PPP Loan of $70,000 and other current
liabilities of $36,000. As of September 30, 2020, our cash balances
along with our short-term investments and marketable equity
securities are adequate to fund our expected expenditures over the
next year.
The
nature of the mineral exploration business requires significant
sources of capital to fund exploration, development and operation
of mining projects. We will need additional capital if we decide to
develop or operate any of our current exploration projects or any
projects or assets we may acquire. We anticipate we would finance
any such development through the use of our cash reserves,
short-term investments, joint ventures, issuance of debt or equity,
or the sale of some or all of our interests in our exploration
projects or assets.
Stock-Based Compensation Plans
As of
September 30, 2020, and December 31, 2019 there were options
outstanding that are exercisable to acquire 5,698,000 and
4,373,000, respectively, shares of Solitario common stock. The
outstanding options have exercise prices between $0.77 per share
and $0.20 per share. We do not anticipate the exercise of options
to be a significant source of cash flow during the remainder of
2020.
Share Repurchase Program
On
October 28, 2015, our Board of Directors approved a share
repurchase program that authorized us to purchase up to two million
shares of our outstanding common stock. During 2019, our Board of
Directors extended the term of the share repurchase program until
December 31, 2020. All shares purchased to date have been cancelled
and reduced the number of shares of outstanding common stock. The
amount and timing of any shares purchased has been determined by
our management and the purchases were effected in the open market
or in privately negotiated transactions based upon market
conditions and other factors, including price, regulatory
requirements and capital availability and in compliance with
applicable state and federal securities laws. The repurchase
program does not require the purchase of any minimum number of
shares of common stock by the Company, and may be suspended,
modified or discontinued at any time without prior notice. No
purchases have been made outside of the United States, including on
the TSX. Payments for shares of common stock repurchased under the
program have been funded using the Company’s working capital.
As of September 30, 2020, Solitario has purchased a total of
994,000 shares for an aggregate purchase price of $467,000 under
the share repurchase program since its inception and these shares
are no longer included in our issued and outstanding shares.
Subject to any legal restrictions and our available financial
resources, we anticipate we will continue to purchase a limited
number of shares under the share repurchase plan during the
remainder of 2020 as determined by management.
(e)
Cash Flows
Net
cash used in operations during the nine months ended September 30,
2020 decreased to $716,000 compared to $2,385,000 of net cash used
in operations for the nine months ended September 30, 2019
primarily as a result of (i) the exploration expense related to the
$1,580,000 payments to Nexa during the nine months ended September
30, 2019, of which $527,000 was incurred and accrued during 2018
and paid in 2019 and the remaining amount of $1,053,000 was
incurred and expensed and paid during 2019, as discussed above,
with no similar item during the nine months ended September 30,
2020; and (ii) the decrease in cash general and administrative
costs, excluding the non-cash costs for stock options, during the
nine months ended September 30, 2020, discussed above, compared to
the cash general and administrative costs during 2019. These
decreases in uses of cash in operations were partially offset by
(i) cash of $185,000 received from the Royalty Sale during the nine
months ended September 30, 2019, with no similar item during the
nine months ended September 30 2020 and (ii) the reduced cash for
interest income received during the nine months ended September 30,
2020 from our short-term investments compared to the cash received
for interest income during the nine months ended September 30,
2019, discussed above, as a result of a decrease in the balances of
our short-term investments and a decrease in interest rates from
2019 to 2020. Based upon projected expenditures in our 2020 budget,
we anticipate the continued use of funds from operations through
the remainder of 2020, primarily for exploration activities at our
Lik and Florida Canyon projects, reconnaissance exploration and
general and administrative uses. See “Results of
Operations” discussed above for further explanation of some
of these variances.
During
the nine months ended September 30, 2020, we provided $490,000 in
cash from investing activities compared to $2,615,000 of cash
provided from investing activities during the nine months ended
September 30, 2019. The primary sources of the cash provided
related to the net proceeds from short-term investment sales and
purchases of $488,000 and $2,844,000, respectively, during the nine
months ended September 30, 2020 and 2019. In addition, during the
nine months ended September 30, 2020 we sold 2,900,000 shares of
Vendetta common stock for proceeds of $123,000, with no similar
item during the nine months ended September 30, 2019 and we used
cash of $121,000, net, from the sale and repurchase of Kinross
calls as derivative instruments during the nine months ended
September 30, 2020, compared to receipt of net cash of $10,000 from
the sale of derivative instruments during the nine months ended
September 30, 2019. We may sell additional marketable equity
securities during the remainder of 2020, as discussed above.
However, we do not anticipate the sale of marketable equity
securities will be a significant source of cash during the
remainder of 2020. We will continue to liquidate a portion of our
short-term investments as needed to fund our operations and / or
evaluate potential mineral property acquisitions during the
remainder of 2020. Any potential mineral property acquisition or
strategic corporate investment during the remainder of 2020,
discussed above under “Business Overview and Summary,”
could involve a significant change in our cash provided or used for
investing activities, depending on the structure of any potential
transaction.
We
received $70,000 from the PPP Loan during the nine months ended
September 30, 2020 to help fund payroll, rent and utilities
expenses, and we used other cash on hand of $5,000 and $12,000,
respectively, for the purchase of our common stock during the nine
months ended September 30, 2020 and 2019, as discussed above under
“Share Repurchase Program” in “Liquidity and
Capital Resources.” We anticipate the use of funds for
additional purchases of our common stock during the remainder of
2020, although we may reduce the number of shares repurchased
during the remainder of 2020, if any, in light of the potential
effects of COVID-19, discussed above, and any additional purchases
will be limited to the maximum number of shares, permissible under
the share repurchase program.
(f)
Off-balance sheet arrangements
As of
September 30, 2020, and December 31, 2019 we have no off-balance
sheet obligations.
(g)
Development Activities, Exploration Activities, Environmental
Compliance and Contractual Obligations
We are
not involved in any development activities, nor do we have any
contractual obligations related to any potential development
activities as of September 30, 2020. As of September 30, 2020,
there have been no changes to our contractual obligations for
exploration activities, environmental compliance or other
obligations from those disclosed in our Management’s
Discussion and Analysis included in our Annual Report on Form 10-K
for the year ended December 31, 2019.
(h)
Discontinued Projects
We sold
our Brazil, Mexico and Montana royalty properties during the nine
months ended September 30, 2019 in the Royalty Sale, discussed
above. We did not record any mineral property write-downs during
the three and nine months ended September 30, 2020 and
2019.
(i)
Critical Accounting Estimates
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations and Note 1 to the Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended
December 31, 2019, describe the significant accounting estimates
and policies used in preparation of our consolidated financial
statements. Actual results in these areas could differ from
management’s estimates.
(j)
Related Party Transactions
As of
September 30, 2020, and for the three and nine months ended
September 30, 2020, we have no related party transactions or
balances.
(k)
Recent Accounting Pronouncements
See
Note 1, “Business and Summary of Significant Accounting
Policies,” to the unaudited condensed consolidated financial
statements under Recent Accounting
Pronouncements” above for a discussion of our
significant accounting policies.
(l)
Forward Looking Statements
This
Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) with respect to our financial
condition, results of operations, business prospects, plans,
objectives, goals, strategies, future events, capital expenditures,
and exploration and development efforts. Words such as
“anticipates,” “expects,”
“intends,” “forecasts,”
“plans,” “believes,” “seeks,”
“estimates,” “may,” “will,” and
similar expressions identify forward-looking statements. These
forward-looking statements are based on our current expectations
and assumptions about future events and are based on currently
available information as to the outcome and timing of future
events. When considering forward-looking statements, you should
keep in mind the risk factors and other cautionary statements
described herein and under the heading "Risk Factors" included in
Item 1A of Part I of our Annual Report on Form 10-K for
the year ended December 31, 2019. These forward-looking
statements appear in a number of places in this report and include
statements with respect to, among other things:
●
Our estimates of
the value and recovery of our short-term investments;
●
Our estimates of
future exploration, development, general and administrative and
other costs;
●
Our ability to
realize a return on our investment in the Lik and Florida Canyon
projects;
●
Our ability to
successfully identify, and execute on transactions to acquire new
mineral exploration properties and other related
assets;
●
Our estimates of
fair value of our investment in shares of Vendetta, Vox and
Kinross;
●
Our expectations
regarding development and exploration of our properties including
those subject to joint venture and shareholder
agreements;
●
The impact of
political and regulatory developments;
●
Our future
financial condition or results of operations and our future
revenues and expenses;
●
Our business
strategy and other plans and objectives for future operations;
and
●
Risks related to pandemics, including the
significant market volatility resulting from the on-going outbreak
of the coronavirus global health pandemic
(COVID-19).
Although we have
attempted to identify important factors that could cause actual
results to differ materially from those described in
forward-looking statements, there may be other factors that cause
results not to be as anticipated, estimated or intended. There can
be no assurance that these statements will prove to be accurate as
actual results and future events could differ materially from those
anticipated in the statements. Except as required by law, we assume
no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events
or otherwise.
